Question

QUESTION 2

MALAM Company is contemplating on the purchase of SIANG Company. The exchange is to be based on the earnings per share value of both companies. The following are the current financial position of both companies.

	MALAM (RM)	SIANG (RM)
Current Assets	150,000	70,000
Plant and machinery	150,000	50,000
Other fixed assets	400,000	130,000
Current Liabilities	30,000	10,000
Long Term debt	140,000	60,000
Common Stock	400,000	160,000
Capital surplus	60,000	5,000
Retained Earnings	70,000	15,000
Additional information
Par Value	RM5	RM2
Earnings per share	RM4	RM1
Price Earnings Ratio	10	4

Show the new consolidated financial position for MALAM Company after the acquisition.

Answer 1

Exchange ratio	1 share of Malam for each 4 share of Siang
Number of shares to be issued	20,000	( 160,000 / 2 ) x 1/4
Market price of Malam Share	RM 40	( PE ratio x EPS ) or ( 10 x 4 )
Consolidated Balance Sheet
	Amount RM	Working
Current Assets	220,000	( 150,000 + 70,000 )
Plant and machinery	200,000	( 150,000 + 50,000 )
Other fixed assets	530,000	( 400,000 + 130,000 )
Goodwill	620,000
Total Assets	1,570,000
Current Liabilities	40,000	(30,000 + 10,000 )
Long Term debt	200,000	(140,000 +60,000 )
Common Stock	500,000	( 400,000 + ( 20,000 x 5 ) )
Capital surplus	760,000	(60,000 + ( 20,000 x 35 ) )
Retained Earnings	70,000
Total Liabilities & Equity	1,570,000
Working:
Goodwill
	Amount RM
Purchase Consideration	800,000
( 20,000 x 40 )
Less: Net Assets	180,000
(160,000 + 5,000 + 15,000 )
Goodwill	620,000